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HQ 113826

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February 20, 1997

VES-13-18-RR:IT:EC 113826 GOB

CATEGORY: CARRIER

Port Director of Customs
Attn.: Vessel Repair Liquidation Unit, Room 415 P.O. Box 2450
San Francisco, CA 94126

RE: Vessel Repair Entry No. C31-0015715-6; CORNUCOPIA, V-357; 19 U.S.C. 1466

Dear Madam:

This is in response to your memorandum of January 23, 1997, which forwarded the application for relief submitted on behalf of West Coast Shipping Company ("applicant") with respect to the above-referenced vessel repair entry.

FACTS:

The evidence of record indicates the following. The CORNUCOPIA ("vessel"), a U.S.-flag vessel owned and operated by the applicant, arrived at the port of Kenai, Alaska on October 10, 1996. The subject vessel repair entry was timely filed. The vessel underwent certain foreign shipyard work in Yokohama, Japan in September of 1996.

You request our determinations with respect to numerous items contained within the application.

ISSUE:

Whether the costs of the subject items are dutiable pursuant to 19 U.S.C. 1466.

LAW AND ANALYSIS:

19 U.S.C. 1466 provides for the payment of duty at a rate of fifty percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in foreign or coastwise trade, or vessels intended to be employed in such trade.

In its application of the vessel repair statute, the Customs Service has held that modifications, alterations, or additions to the hull and fittings of a vessel are not subject to vessel repair duties. The identification of work constituting modifications vis-a-vis work constituting repairs has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a nondutiable modification, the following factors have been considered:

1. Whether there is a permanent incorporation into the hull or superstructure of a vessel, either in a structural sense or as demonstrated by means of attachment so as to be indicative of a permanent incorporation. See United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930). However, we note that a permanent incorporation or attachment does not necessarily involve a modification; it may involve a dutiable repair.

2. Whether in all likelihood an item would remain aboard a vessel during an extended lay-up.

3. Whether an item constitutes a new design feature and does not merely replace a part, fitting, or structure that is performing a similar function.

4. Whether an item provides an improvement or enhancement in operation or efficiency of the vessel.

We will respond in the same format and order as you used in your forwarding memorandum.

Items 101-115, 117, and 120. These items are drydock or general services costs. They include deck and bulkhead protection, signage, tugs and pilots, berthage, fire and security protection, etc. The cost of these items should be prorated between the dutiable and nondutiable costs associated with the drydocking. This proration concept with respect to drydock costs and general services costs was enunciated in Ruling 113474 dated October 24, 1995, as well as in numerous subsequent rulings.

Items 121 and 122. Deck Utility Piping Extension (121) and Coating of Deck Utility Piping Extension (122). The invoice reflects that item 121 involves the modification of the utility line on deck. Item 122 involves the sand blasting and coating of the new pipe supports and hangers. We find that these are nondutiable modifications.

Items 124 and 125. Access Improvements on Main Deck (124) and Coating of Access Improvements on Main Deck (125). The invoice reflects that item 124 involves the fabrication and installation "by welding catwalks, railings, ladders, and steps facilitating access to areas of main deck and cargo tank domes within deck girder area." Item 125 involves the sand blasting, coating, and cleaning of all new areas. We find that these are nondutiable modifications.

Item 130. Services for Auxiliary Circulating Pump Overboard. This item is dutiable because it is incident to item 129, which is a dutiable item involving the repair of the auxiliary circulating pump.

Items 131 and 132. No. 1 and 2 Cargo Tank Bottom Insulation Modification (131) and No. 2 Cargo Tank Vertical Side Insulation Modification (132). The invoices reflect that these items involve the modification of two of the vessel's insulation systems. We find that these are nondutiable modifications.

Item 133. New Access Rungs to Bottom of Cargo Tanks in Interbarriers One and Two. The invoice indicates that this item reflects an addition to the existing structure. We find that it is a nondutiable modification.

Item 134. Services for Insulation Modification in Interbarriers One and Two. This item is nondutiable because it is a cost incident to items 131 and 132, which are themselves nondutiable.

Items 137, 139, 142, 145, 150, 152, and 156. These items are for services, such as lighting and temporary staging, which are incident to specific dutiable repairs. Accordingly, these items are dutiable.

Item 135. New Pipe Support - Dome No. 1. We find that this pipe support is a nondutiable modification.

Item 140. Inspection of Void Spaces Around Cargo Tanks No. 1, 2, 3, and 4. The applicant states that this inspection of void spaces is an ABS requirement. The invoice reflects that this item includes a non-segregated sub-item for gas freeing, which is a cost which is prorated between dutiable and nondutiable items. Accordingly, we find that this entire item should be prorated.

Items 146, 147, 148, 153, 157, and 158. Various Structural Modifications. The invoices reflect that these items involve modifications. Therefore, they are nondutiable. Item 162. Deck Crane Load Test. The invoice reflects that this item involves a "five year retesting of both port and starboard deck cranes." This item is nondutiable as a periodic test which does not involve and is not related to a repair.

Item 163. Assistance for Loading Liquid Nitrogen. This item is similar to drydock costs or general service costs and should be prorated in the same manner as those costs.

Item 164. Assistance for Loading Bunkers. This item is not a repair or repair-related item. Further, it does not appear to be a cost appropriately included with the drydock costs. Accordingly, we find that it is nondutiable.

ABS Surveys. The damage repair survey is dutiable because it is related to repairs. The continuous hull survey, continuous machinery survey, modified insulation survey, modified bulkhead plate survey, and crane testing are nondutiable as surveys or tests unrelated to repairs. The costs of overhead and "expenses" are dutiable in the absence of a break-out showing which survey they relate to.

HOLDING:

As detailed above, the application is granted in part and denied in part.

Sincerely,

Jerry Laderberg
Acting Chief,
Entry and Carrier Rulings Branch

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